Illinois dragging its feet on pension problem

By SARA BURNETT - The Associated Press

CHICAGO – Illinois, a state with a reputation for political wheeling and dealing, backroom handshakes and 11th-hour bargains, is dragging its feet on the one deal needed to solve its biggest crisis in a generation.

Lawmakers will convene again the first week in January in hopes of fixing the nation’s worst case of underfunding state employees’ pensions, a problem approaching $100 billion and mounting by $17 million per day. On the table are solutions that other states adopted as long as five years ago.

California and New York – states that, like Illinois, lean Democratic and have strong state employee unions – already took unpopular, tough-love measures to pass pension reform.

So have Kansas and Rhode Island – which in recent years kept Illinois company by having set aside barely half the money needed to fund their pensions – and dozens of other states. Among the changes are higher retirement ages, asking workers to contribute more and switching to 401(k)-style plans.

Critics blame Illinois’ situation on procrastination, budgetary “gimmicks” and frequent raids on state-employee retirement funds to pay for other state expenses. Others blame an unwillingness to take on the unions, which help keep Democrats in power in President Barack Obama’s home state. But it’s a problem decades in the making, through nearly a dozen Republican and Democratic governors and through legislatures controlled by both parties, dating back to before Illinois changed its constitution in 1970 to prohibit reductions in state employee retirement plans.

“Nothing has changed in 40 years,” said Elaine Nekritz, a suburban Chicago Democrat and chairman of the House Pensions Committee, who called for an end to “excuses” when rolling out a proposal to solve the problem this month.

Getting a deal done will most likely require lawmakers to do things practically unheard of; Democrats would have to anger loyal union supporters, while Republicans would have to support a plan they think will lead to a tax hike. But without a fix, the payment the state has to make to its pension fund each year will continue to grow, leaving less money for things like education and health care that already have seen big cuts. By 2016, Illinois would be spending more on pension payments than on schools, the governor’s office estimates.

To many political veterans, the challenge is less a financial problem than a cultural one. They say the main reason behind the inertia is the same as what got the state into the mess in the first place: Illinois’ particular adherence to the maxim that it’s always easier to give than to take away, hence promising money to state employees while also spending it elsewhere.

“It’s that culture of ‘Where’s mine?’ “ said Richard Dye, who contributed earlier this year to a damning, high-level assessment of Illinois’ state finances, citing the famous two-word phrase that late newspaper columnist Mike Royko nominated as Chicago’s motto.

“There’s a lot of attention to taking care of everybody and not the fiscal conservatism of ‘How are you going to pay for that?’ “ added Dye, an economist at the University of Illinois’ Institute of Government and Public Affairs. “The fundamental thing is the short-sightedness.”

Many states have pension shortfalls, caused largely because lawmakers promised teachers, police officers and other state employees healthy pensions, along with favorable retirement conditions, without putting aside enough money to cover the obligations. The shortfalls were exacerbated during the economic downturns of the last decade, which cut pension fund earnings. Retirees also live longer now and earn more in benefits.

But while some states shorted their pension contributions mainly to get through bad economic years, Illinois was remarkably consistent in shirking its full obligations, even in the best of financial times.

The state’s fiscal situation worsened through the 2000s, as Gov. Rod Blagojevich took the helm. He is now imprisoned on corruption charges, including trying to sell Obama’s vacated U.S. Senate seat.

In October, a task force led by former Federal Reserve Bank Chairman Paul Volcker and the former New York Lt. Gov. Richard Ravitch reported Illinois had relied on “budget gimmicks,” borrowing and shifting money across funds and years. As the state saw its credit rating downgraded to the lowest level in the nation, Volcker and Ravitch warned the state must “change how it does business.”

Pat Quinn, Illinois’ current governor, says he was “put on earth” to solve the problem and that the upcoming session offers the best opportunity in his lifetime to do so. He gave lawmakers a deadline of Jan. 9, the end of a one-week legislative session when several dozen lame-duck lawmakers can vote without worrying about facing voters again.

Illinois lawmakers are quick to point out that several structural issues make the state’s situation especially difficult to solve, from the way teacher pensions are funded to especially strong language in the state constitution that protects public employee benefits.

In 2010 they did make some gains, agreeing to changes for new public employees. But a major fix – dealing with benefits to the 700,000 existing workers and retirees — has remained elusive. A 66 percent state income tax hike passed in early 2011 didn’t generate enough money to make a dent in the pension shortfall.

Union officials have offered lawmakers a deal, agreeing to contribute more to their own pensions if the state makes its full contribution each year and closes some tax loopholes for corporations.

“For decades, they had the choice of raising adequate revenue or cutting back on spending,” said Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees. “They found a third way, and that third way was habitually using pension funds like a credit card.”

Even House Speaker Michael Madigan – who’s been speaker for 27 of his 42 years in office and is considered the most powerful lawmaker in Springfield – was critical of how legislators have ducked the issue in an interview with a reporter from ABC’s Chicago affiliate.

Too many lawmakers, Madigan said, “say the right thing for public consumption, but then when it comes time to cast a difficult vote, they’re in the bathroom somewhere.”